Colorado Springs Trust

Understanding how beneficiary designations work with your estate plan

If you have life insurance or a retirement plan you’re certainly familiar with beneficiary designations (BDs). BDs give you the ability to designate who will receive the asset at your death. It’s important to know that a BD trumps your will or trust. So if you gift a life insurance policy to Bob in your Will, but you list Bill on the BD, Bob’s out of luck.

BDs can be an effective tool in avoiding probate or ensuring that assets are distributed to your beneficiaries quickly after your death. However, if not given some thought, BDs can lead to some potentially serious financial and legal problems.

Here’s an example:

Husband and wife with 4 kids ranging in ages from 12-21. 21 year old takes a few college classes but really has no direction in life. He has never been able to save money. Lives at home and plays hours of online poker. 17 year old daughter who does well in school. She's smart with money and saves nearly all she earns. 14 year old son who has special needs. He'll likely never be on his own and will receive government benefits his whole life. 12 year son who is the most difficult child. He's constantly in trouble and was recently caught vaping at school.

Husband has a good job with great retirement benefits. When he initially filled out the paperwork for his 401k he wasn’t exactly sure who to name as beneficiaries. So, like most people in his situation he asked the HR rep helping him with the paperwork, what he should do. The reps advice: “Just name your wife as the primary and each of your kids as contingent. That’s what everybody else does.” Just to be safe, he ran it past his financial adviser who said that's how advises people to do it. Husband and his wife did the same thing on their life insurance policies.

Sounds like good advice, right? You want your assets to go to your spouse and kids.

Husband and wife are involved in a horrible car accident and both die. Fortunately, they had planned for this sort of situation. They both had a $500k life insurance policy and husband had $200k in his 401k. They had Wills and had named guardians for the 3 minor kids On first glance it looks pretty good. But is it?

What happens with the insurance policies and the 401k?

The 21 year old gets a check from the insurance company for his 1/4 share ($250k) and an inherited IRA for $50k. Zero provisions on how to spend it. Do you think he's going to keep taking college classes? Unless someone helps him, this money's gone in 18-24 months.

17, 14 and 12 year olds. Because they’re all minors, they can’t own these assets themselves. Instead, a custodian is appointed who handles the assets on their behalf. When they reach a certain age (21 in Colorado) the kids gain control of the money. The 17 year old seems like she might make good decisions, but who knows. What about the 14 year old with special needs? Inheriting that kind of money will disqualify him from Medicaid benefits because it puts him well over the allowable asset limit. Oops. (Much more on special needs planning next time). Troubled 12 year old? Serious drug user by age 21. $300k is going to ruin his life.

Husband and wife never intended for this to happen. They always wanted the best for their kids and assumed that leaving money for their kids in case something like this happened would only help them. So how do you prevent this from happening?

First: If you have a financial adviser, share this example with them and see what they say. It might be time to get a new financial adviser.

Second: Talk to an estate planning attorney (not your neighbor who's a personal injury attorney or your sister-in-law who practices patent law) who can work with you to prevent something like this from happening.

Third: If necessary, update your beneficiary designations.

Long-term care insurance. Do you have it?

Last week I meet with a man who recently moved his father into a nursing home. His father doesn’t have much money and doesn’t have long-term care insurance. His only option for getting the care he needs is through Medicaid. Medicaid is a true godsend for many people, but it requires that a person have next to nothing as far as assets. As you can probably imagine, facilities that accept Medicaid are not very nice. I’ve visited my fair share, and I always leave feeling a little depressed. The man I met with expressed similar feelings. His description of where his dad is: “gross and depressing.”

If you haven’t researched the costs of a nursing care, take a look. It’s sobering. There are 3 ways to pay for long-term care:

  1. Self-pay

  2. Long-term care insurance

  3. Medicaid

So, what’s the point of this post? It’s not to bash Medicaid or facilities that accept Medicaid. It’s a call to action. If you don’t have long-term care insurance, look into it. The sooner the better, because it gets significantly more expensive the older you get. If you don’t know who to talk to about it, contact me and I’ll give you some referrals. The man I met I with was so affected by his dad’s current situation, that he went out and got long-term care insurance for him and his wife. He didn’t want his wife or kids to have to go through what he’s going through with his dad.

Like I always say to my clients, you’re not planning for yourself. You’ll be incapacitated or dead. You do it for your family and friends who will have to take care of you. Make the decision today to get your estate planning affairs in order. Contact me today for your free consultation.

Can you put a price on peace of mind?

I recently finished helping two separate clients with their estate planning. After we signed all of their documents, they both expressed the same sentiment—”We feel so much peace knowing that when something happens, we have everything in place.”

Providing my clients with that peace of mind is my primary goal when creating estate plans. If you’ve been putting your planning off and it keeps nagging at you, call me to set up a free estate planning consultation.

They have a law degree and passed the Bar. They must be good, right?

Several years ago, my son had some reconstructive surgery.  My wife spent hours researching doctors before choosing a doctor in Denver. This doctor had an impressive resume-- she had attended great schools, had lots experience and we liked her. The first surgery was an absolute failure. The doctor was surprised at the result and assured us that if she did it again, we'd get the result we expected.  The second surgery wasn't much better, and our frustration increased. We decided to give her one last shot, thinking the third time's a charm.  Same surgery with the same result. We were furious and confused. How could someone who seemed so qualified, do such an awful job? Not just once, but three times. 

My wife and I were talking about this experience the other day, which led to a discussion about the wide range of abilities among professionals. There are lots of estate planning attorneys in Colorado Springs. Some are really good and some are really bad. So, how does someone know which one to choose? Here are my tips for choosing your estate planning attorney:

  • Ask for referrals from friends or family or coworkers. Do you have a CPA or financial adviser? These professionals regularly work with estate planning attorneys and should have some good insight.
  • Google their name and see what you find. Do they have a website? Do they have any reviews on Google? Go to the website Avvo and see what it says about them. 
  • Go meet them in person. Most attorneys offer a free 30-minute consultation. Ask lots of questions. After 30 minutes you should have a pretty good sense of whether you like the attorney or not, how experienced they are in estate planning and whether they're competent.
  • Don't confuse price with value and remember that you usually get what you pay for. I'd be nervous about an attorney who says they'll prepare your trust-based plan for $1,000. I'd run from an attorney who says it will cost $10,000 to do the same thing.

If you're looking for an estate planning attorney, try this out on me. Look me up on the web. Schedule a free consultation and come meet with me. I'm confident you'll be happy with what you find out. 

"I thought a Will avoided probate"

I was asked to look over a Last Will and Testament that was recently drafted by an attorney in town. I asked her what she wanted her estate plan to accomplish.  Among other things, she wanted to avoid probate when she died. She was shocked when I explained that probate would be necessary with a Will.

I don't know the cause of her misunderstanding--maybe from her prior attorney or from bad information on the web. Whatever the source, she thought she had a good plan in place. 

If you have a plan that you're uncertain about, or questions about how it should work, I'm happy to look it over. Better to fix it now, than to leave your family with a mess. 

Call Justin Fish Legal today for a free consultation. 

"We Just Want Something Simple"

I recently met with a couple who wanted to update their estate plan. Early in the meeting, the wife said matter-of-factly, "We have a simple estate. We want a simple estate plan." When people tell me that they have a "simple estate" what they're usually saying is that they don't think the value of their assets warrants anything more than a "simple" plan.

As I talked to this couple I learned a lot about their "simple estate."

  • This was a second marriage for both of them.
  • The husband has a child with severe mental disabilities. 
  • The wife has a son who's an alcoholic and a daughter whose marriage is shaky.
  • The husband owns a rental property in California.
  • The wife is expecting a fairly large inheritance in the next few years.

Sounds simple, right?

The truth about estate planning is that the overall value of one's assets is a just a fraction of determining what type of plan a person needs. For this couple, there were so many issues to address that had nothing to do with the current value of their estate. The non-money related issues actually made their estate somewhat complex. 

There's a common saying among estate planning attorneys: "You don't know what you don't know." This is why a great estate planning attorney is so important. Looking at more than just the overall value of the estate reveals that something "simple" normally won't cut it. 

Call or e-mail Justin Fish Legal today to schedule your free estate planning consultation.

Lessons Learned

I recently worked with a man whose situation illustrates how important it is to have an estate plan in place. "Bill" passed away in October and had an estate worth over 4 million dollars. He was single with no kids and had one one brother with whom he had little contact. 

The first time I met Bill was in the hospital, a day after he left the ICU.  His assistant contacted me because Bill didn't have an estate plan in place.  Luckily,  I was able to finish Bill's plan weeks before he passed away.  If he hadn't created a plan a few things would have happened:

  1. If Bill had died without a Will or a Trust, his entire estate would have gone to his brother. That was exactly the outcome Bill didn't want. He ended up distributing his estate to 40 different friends and charities. When someone dies without a Will or a Trust, state law determines where one's estate goes. A Will or a Trust allows a person to decide exactly how they want their assets distributed
  2. I always prepare a Living Will when I create an estate plan. A Living Will contains a person's instructions in the event they're in a vegetative state or have a terminal condition. Before Bill died, he fell into a vegetative state.  His healthcare agent relied on Bill's Living Will to make end-of-life decisions. I later spoke with Bill's healthcare agent and he expressed how grateful he was that Bill had a Living Will. He simply followed Bill's wishes and wasn't left with the difficulty of deciding when to end another person's life.

I've learned that estate planning is really meant to benefit the people we love. When we plan, we provide set of instructions wherein we describe what we want to happen during our incapacity and at our death. These instructions are invaluable when it comes time to make decisions. Taking care of our estate planning is a great gift to give our loved ones this holiday season.

What's The Value of an Estate Plan?

Most people agree that some type of life insurance is very important. I certainly believe it is, which is why I make monthly payments on my term-life policy . If something where to happen to me, life insurance will ensure that my wife and kids are financially taken care of.

Consider this: Depending on which study you read or expert you ask, less than 1-2% of term-life policies will actually pay out. Why? Because 98-99% of people will outlive their term policy.

Now think about estate planning. Do we consider an estate plan as important as life insurance? We should, because 100% of people will actually use their will or trust.